Interview: Christian Daes
What can be done to help Colombia remain attractive to foreign investors given high energy costs?
CHRISTIAN DAES: Industrial electricity tariffs in Colombia are high compared to the cost of producing electricity, which is reasonably cheap due to the abundance of water resources and hydroelectric generators. To reduce costs, companies are opting to use alternative energy sources like natural gas, which is plentiful in many regions. Current average prices for energy are around $0.06 per kWh. Unfortunately, domestic natural gas and electricity prices are higher than international prices, but with a combination of the right technology and energy-efficient methods, Colombian firms can achieve a higher level of competitiveness.
Now that Colombia has been implementing open foreign and trade policy, companies need to keep in mind their efficiency costs in order to compete with international firms that are establishing themselves in the country. In this regard, it is important to use state-of-the-art machinery that helps optimise energy consumption. Purchasing the latest technology should be seen as a long-term investment to augment profitability, rather than an immediate cost.
However, we need to analyse other factors in the country’s attractiveness to international investors such as its strategic location, its access to most US, European, Asian and African markets via the Pacific and Atlantic oceans, the quality and reasonable cost of skilled human capital, and abundant biodiversity and availability of natural resources. Colombia’s climate also allows constant advancements independent of the weather, especially in agriculture and construction. More specifically, Barranquilla is becoming one of the most important industrial venues in Colombia and the Caribbean region with its industrial port and excellent connections, both by air and sea. These business and industrial developments, coupled with the low costs of living, are drawing new international firms looking to expand in Latin and Central America.
How has the global economic slowdown affected the prices and demand for industrial materials?
DAES: In this context of international recession, the demand for industrial products and materials, including glass, has certainly declined, leading to lower prices. However, the US economy has shown signs of recovery, causing reasonable increases in demand and price. We expect this trend to continue during the next two years. Also, the reduction of trade barriers, thanks to the free trade agreement between Colombia and US, is helping maintain a positive economic growth rate and supporting the expansion of Colombian firms abroad. In this regard, an increasing number of Colombian manufactured industrial products are being accepted and welcomed abroad.
How can industry expand its role in the economy?
DAES: Over the past decade, Colombia has transformed into a service-oriented economy and the industrial sector’s contribution to GDP has dropped. Compared to the services sector, industrial development is capital-intensive, and this is why the country needs to establish a more favourable legal and tax framework for industrial firms, or introduce policies that facilitate credit lines to the industrial sector. The sector needs to cooperate with the government on projects related to infrastructure, in programmes that foster foreign investment and through initiatives that ease access to capital for Colombian companies. Currently, important infrastructure works are being developed. Transport improvements are expected to decrease logistics costs and create a higher inflow of in-and-out trade with the inner regions. The government should also incentivise foreign direct investment by implementing tax-friendly policies, especially during the first years of activity. This would increase Colombia’s attractiveness as a location to create new companies or establish subsidiaries, stimulate job creation and raise the quality level of employees.
Read More from OBG
